Kibaki transferred Chris Murungaru from the national security portfolio where he had direct access to the president, to the transport ministry, and sacked Dave Mwangi, the permanent secretary in Murunguru's department, the presidential press service said on Monday.
Murungaru was replaced with John Michuki, a former transport minister, the service said in a statement, which also announced less drastic changes at the cabinet level and below.
"The changes are aimed at improving government service delivery, accountability and efficiency," it said, adding that Kibaki had renewed warnings to all public servants against violating anti-graft regulations.
"Accounting officers must ensure that the existing regulations are followed strictly in order to stamp out corruption from government," the statement said.
Kibaki had been under mounting international pressure to show that he is serious about fighting corruption.
Last month, a Kenyan newspaper implicated Murungaru and a top aide to Kibaki, among other officials, in an alleged corruption network and the minister was involved in a short-lived attempt to prosecute the journalist who wrote the story under a little-used criminal libel law.
The case was dropped amid heavy international pressure and complaints from Kenya's main foreign donors that Kibaki's government was attempting to cover up graft.
But two weeks later, international criticism surged anew when British High Commissioner to Kenya, Edward Clay, said Kibaki had failed to prevent "massive looting" of public funds and pointed out 20 suspect deals that needed to be probed.
Murungaru's demotion came just hours after Britain said it had denied a visa to a former top aide to retired Kenyan president Daniel Moi over corruption charges and warned that current officials could face similar bans.
An official at the British High Commission in Nairobi said Joshua Kulei, who served as Moi's personal assistant until the president retired in 2002, had been denied a visa because he has been implicated in numerous corruption scams.
On 8 February, Kibaki's chief advisor on corruption John Githongo resigned, and, the next day, the US suspended some $2.5 million in anti-corruption assistance to Kenya.
The EU last week also threatened to review its funding based on Kenya's poor record in fighting corruption.
Despite Kibaki's repeated pledges to clamp down, donors estimate it may have cost Kenya up to a billion dollars since 2002, nearly a fifth of the country's 2004-05 official state budget of about $5.5 billion.